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July 28, 2011 |

Iowa's Treasury

Are our state's coffers half full or half empty? Depends who you ask.

By Bret Voorhees

While Democrats and Republicans hammered out a final state budget, two divergent
points of view were expressed about the condition of the state's treasury. Picture
a glass of water on the counter representing state coffers. One side said the
glass was half full; the other said it was half empty. In the end, a budget
of $5,999,678 was established for Fiscal 2012, which started July 1, 2011. While
the final budget has not been set because it is under review and can be lowered
by the governor, that number fell more in line with those saying the glass was
half full.

The half-full, half-empty question centers in part around how much money is
carried over from last year into this year. The latest estimate from the state
treasurer's office indicates the state will start the year with a pad of $916
million, the highest level in the past seven years.

David Roederer, Director of the Iowa Department of Management, said not so fast.
He stated that the number could change because the state will not officially
close its books for a couple of months. He also said we need that pad to get
through the year with a still uncertain economy and potential cuts in federal
funding.

In his closing remarks to the Senate this year, Majority Leader Mike Gronstal
(D-Council Bluffs) noted that "finding agreement has not been easy, and
that is probably a considerable understatement. Why was it so difficult? It
sure wasn't a lack of funds… Instead, the state of Iowa was forced into
a lengthy, bitter fight to save preschool, to provide a modest increase in state
support to local schools the year after next and to soften cuts to colleges,"
Gronstal said.

told Cityview, "Essentially the end debate was about funding education;
that was what the entire eight weeks was about. We had some successes and restored
many of the funds for education."

Gronstal says it was particularly frustrating because the allowable growth for
school districts was set at zero for the first time in history. A 1 percent
growth would amount to $30 million.

"We had the money in the bank," he said.

House Speaker Kraig Paulsen (R-Hiawatha) did not respond to a call from Cityview.

David Roederer, Director of the Iowa
Department of Management

Roederer notes that while the governor's budget did recommend zero allowable
growth, the governor put in $215 million to offset past cuts and underfunding.
Roederer says it was a tight budget because of the need to cover $800 million
in one-time money used in the last fiscal year.

"We are still concerned until we see hiring and employment increase and
rebound in key sectors such as construction," Roederer stressed. "We
are real cautious in revenue projections and never completely comfortable,"
he said while stating that potential changes in the federal tax code could also
drop state revenues.

Roederer also says the pad is misleading because of the need to rebuild the
state's reserve funds.

The state has two reserve funds that, when full, equal 10 percent of the budget.
A cash reserve fund can grow to 7.5 percent of the general fund and is used
to ensure state payments are made to schools and others that depend on the fund.
A second economic emergency fund can grow to 2.5 percent. This is commonly called
the rainy day fund to cover emergency needs. It's like two buckets that are
filled based on leftover funds from the year before. Any additional dollars
beyond that is considered surplus for next year's budget.

While Roederer says filling those buckets means "$600 million that's off
the table," Gronstal says the emergency funds will be full, and the state
will still have a surplus of nearly $400 million.

Budget background

The top amount of money that can be appropriated by the legislature is set
by the Revenue Estimating Committee (REC). It is a three-person board comprised
of one person appointed by the governor and the director of the Department of
Management; a member of the Legislative Fiscal Bureau which is a neutral non-partisan
branch of the Legislature; and a third private member.

Majority Leader Mike Gronstal
(D-Council Bluffs)

This committee was established in the 1990s to take some of the politics out
of forecasting state revenues and uses a number of economic forecasting models
and indicators. It meets in December to establish a top number which the governor
uses to set his budget. It meets again in the spring, and if the forecast goes
south, a tighter budget must be developed. If the picture is rosier, the lower
December forecast is retained. By law, only 99 percent of the estimate can be
used.

According to the Legislative Fiscal Bureau's website, the expenditure limitation
for fiscal year 2012 is estimated to be $6.298 billion. This represents 99 percent
of the REC net revenue estimate ($6.031 billion) and 100 percent of the $327.4
million transferred from the economic emergency fund.

The Republican-controlled House passed a budget that spent 95 percent of the
allowable amount; the Democrat-controlled Senate's version was 98 percent. The
governor submitted a budget that amounted to $6.161 billion.

Reaction and what it means

The appropriation to Iowa's K-12 school systems is the largest chunk from the
Iowa General Fund and typically is around 40 percent. The zero allowable growth
has meant belt tightening for schools around the state.

Phil Roeder, spokesman for the Des Moines School District, says while an uptick
in enrollment will offset reductions in state aid this year, the base amount
has shrunk with budget cuts over the past 10 years. State aid for Des Moines
has dropped by more than $73 million since 2002.

"This has been an ongoing challenge," Roeder said.

The district has responded by not filling positions as staff leave and retire.

State Treasurer Mike Fitzgerald

"Personnel accounts for 85 percent of our budget. We've tried to keep
it away from the classroom," Roeder said, noting that administration staff
has been cut by 18 percent and operations by 12 percent.

State Treasurer Mike Fitzgerald says we have money and should be loosening the
purse strings to allow state agencies to refill needed positions.

"When you have a 10 percent reserve you are in great shape, and we are
beyond that," Fitzgerald said. "I think we are at a bare bones operation
in state government. We are pushing the limits on public safety."

Fitzgerald tells the story of hitting a deer one night. He called the Iowa State
Patrol, but after waiting for over an hour decided to move on and get back home.

"We are way down with highway patrolman," he said.

Col. Patrick Hoyle leads the State Patrol. He echoes Fitzgerald's comments,
noting that in the year 2000 the patrol had a force of 455. The latest count
is 370. "We continue to function the best we can with the resources we
have," Hoyle said. "With numbers as low as they are now, it affects
our response to incidents."

Hoyle says the state patrol is "more reactive than proactive and less able
to change driver behavior with much less visibility." This year the patrol's
budget was augmented to save 45 troopers that had been funded with federal dollars.

The Iowa Department of Human Services (DHS) has also seen a decline in staff
levels. In an email to staff, Department Director Charles Palmer wrote, "Concerning
the level of our budget, there's no question that it provides resources needed
for the DHS to deliver services to Iowa's most needy and vulnerable."

Roger Munns, DHS Public Information Officer, says not filling positions as personnel
leave is one way the department has saved. In January, DHS had 5,289 workers;
six months later in June, that number had shrunk to 5,164.

Cuts to Board of Regents

Patrice Sayre, Chief Business Officer for the Iowa Board of Regents, notes
the proposed budget for the Regents is $528,481,130, down 5.3 percent and nearly
$30 million from the year before. That continues a trend that started in 2008.
The Regents, which include Iowa's three public universities and two specialty
schools, has taken a hit of nearly 25 percent since then.

In terms of the general fund appropriation, "that takes us back to what
they were in 1994," according to Warren Madden, Vice President for Business
and Finance at Iowa State University. ISU faces a reduction of $11.5 million
or just more than 5 percent. Of that amount, $11.1 million comes from the general
education fund used to support teaching and instructional activities.

Madden notes that "tuition is making more than half of college costs,"
and there is a continuing "shifting from public support to asking students
and families to pay a higher share." The Board of Regents approved a tuition
rate increase of 5 percent for residents and 3.5 percent for non-residents to
offset some of the budget reductions.

Madden says the University has responded by furloughing staff, reducing contributions
to retirement program, not filling positions and implementing layoffs. While
facing a tighter budget, ISU expects a record enrollment of 29,200 students
this fall.

"While that presents a positive in terms of tuition revenue, it also adds
to costs with higher class sizes and teaching requirements," Madden said,
adding that a record number of students also adds additional needs for counseling,
public safety and other student services.

Madden says ISU will present a budget to the Board of Regents in August that
will include a "modest salary increase of 2 percent to 2.5 percent for
faculty and professional staff." He notes these staff "haven't had
any pay increase for two years, and the marketplace is moving along. We felt
we need to provide some modest salary increase to stay competitive."

Union covered workers received a 2 percent cost of living adjustment in July
of this year and will receive another 1 percent in January 2012.

Madden says the appropriation process is public policy rightfully decided by
the legislature and governor. He says Iowa State will continue to provide an
attractive place that provides a good quality education.

While those who depend on the general fund are dealing with tight budgets, others
who don't depend on it have another point of view. Judd Saul, founder of the
Cedar Valley Tea Party, said, "If there is a billion in the kitty, I am
jumping for joy. Everyone wants more money, and throwing more money at the problem
is not the answer."

Better than other states

All agree that Iowa stands much stronger than most other states.

Two factors led to Iowa's current financial situation — costs were controlled,
and revenues grew. While serving as governor, Chet Culver enacted an across-the-board
10 percent cut in October 2009 when Iowa's economy started to sour and the state
was still recovering from record floods of 2008. That cut became the new base
amount.

At the same time, state revenues continue to grow and through May 2011 ran nearly
7 percent above the year before. All agree that a strong agriculture sector
has helped Iowa navigate through the economic storm that has been recognized
nationally by other states.

Using estimates from this spring, the National Governor's Association lists
Iowa sixth nationally in terms of the estimated amount that will be rolled over
and carried into fiscal 2012 while many states are dealing with record deficits.

"We can at least control our own destiny unlike other states which have
no control," Roederer notes.